Japan

Employment income deduction

Permanent and non-permanent resident employees can take an employment income deduction, which is calculated by applying an applicable rate to gross employment income as follows (the minimum deduction is JPY 740,000 or gross employment income, whichever is lower). The deduction is capped at JPY 1.95 million.

Personal exemptions

Resident taxpayers are entitled to a personal exemption for both national income tax and local inhabitants tax purposes based on their total income during the tax year. A non-resident taxpayer is only eligible for a personal exemption for national income tax purposes.  

To moderate the tax burden during a period of rapid price increases, a temporary increase in the basic exemption has been introduced for certain income bands. For national income tax, this increased exemption will be applied for the 2026 and 2027 tax years. The local inhabitants tax exemption remains unchanged. The exemptions are as follows:

A special spouse exemption of up to JPY 380,000 for national income tax purposes and JPY 330,000 for local inhabitant’s tax purposes may be claimed, depending on the spouse’s income, by taxpayers whose total income amount does not exceed JPY 10 million.

Resident taxpayers are allowed a deduction for each dependant who is 16 years old or older. A dependant is a relative, other than a spouse, who is supported by the taxpayer provided that the dependant’s income does not exceed JPY 580,000 for the year. The dependant is not required to live with the taxpayer but should receive support from the taxpayer as part of the taxpayer’s household. The amount of the deduction increases if the dependant is aged 70 or older at the end of the year or is at least 19 years old but less than 23 years old. For each category of dependants, the deductions also increase if the dependant has a disability. For this deduction to apply, the dependent’s income amount must fall within certain limits.

In general, a non-resident taxpayer is not eligible for any of these deductions.

Business deductions

Business expenses are tax deductible in some limited cases. An employer’s reimbursements of business expenses, such as commuting, travel, and entertainment expenses, do not constitute taxable income to the employee, provided the expenses are required for the employer’s business.

A self-employed taxpayer is allowed to claim business expenses against income, provided it can be substantiated that the expenses are necessary.

Losses

Capital losses arising from the sale of publicly traded shares and specified bonds (‘publicly traded investments group’) through a qualified Japanese broker will be offset against dividends from publicly traded shares and interest from specified bonds, provided separate taxation by filing is elected.

Under the current tax law, capital losses through sales from a qualified Japanese broker within a publicly traded investments group after offset against dividends from publicly offered shares and interest from bonds or bond funds may be carried over for three years.